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Suny Empire State College Partnerships and Proprietorships Questions

Which of the following statements is CORRECT?

Select one:

A. Proprietorships and partnerships generally have a tax advantage over corporations.

B. One of the disadvantages of incorporating your business is that you could become subject to the firm’s liabilities in the event of bankruptcy.

C. Proprietorships are subject to more regulations than corporations.

D. Corporations of all types are subject to the corporate

Which of the following could explain why a business might choose to operate as a corporation rather than as a proprietorship or a partnership?

Select one:

A. Corporate shareholders are exposed to unlimited liability, but this factor is offset by the tax advantages of incorporation.
Corporations generally face fewer regulations.
C. Corporate investors are exposed to unlimited liability.
D.Less of a corporation’s income is generally subject to federal taxes.
E. Corporations generally find it easier to raise large amounts of capital.

Which of the following statements is CORRECT?

Select one:

A. Since bondholders receive fixed payments, they do not share in the gains if risky projects turn out to be highly successful. However, they do share in the losses if risky projects fail and drive the firm into bankruptcy. Therefore, bondholders generally prefer to see corporate managers invest in low risk/low return projects rather than high risk/high return projects.
B. One advantage of operating a business as a corporation is that stockholders can deduct their pro rata share of the taxes the firm pays, thereby eliminating the double taxation investors would face in a partnership.
C. Because bankruptcy requires that corporate bondholders be paid in full before stockholders receive anything, bondholders generally prefer to see corporate managers invest in high risk/high return projects rather than low risk/low return projects.

D. Potential conflicts between stockholders and bondholders are increased if a firm’s bonds are convertible into its common stock.

E. One drawback of forming a corporation is that you lose the limited liability that you would otherwise receive as a proprietor.


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